--- a/browser/components/extensions/parent/ext-url-overrides.js
+++ b/browser/components/extensions/parent/ext-url-overrides.js
@@ -95,34 +95,26 @@ function setNewTabURL(extensionId, url) 
 }
 
 // eslint-disable-next-line mozilla/balanced-listeners
 ExtensionParent.apiManager.on(
   "extension-setting-changed",
   async (eventName, setting) => {
     let extensionId, url;
     if (setting.type === STORE_TYPE && setting.key === NEW_TAB_SETTING_NAME) {
-      let { item = {} } = setting;
-      if (setting.action === "enable") {
-        // If setting.item exists, it is the new value.  If it doesn't exist, and an
-        // extension is being enabled, we use the id.
-        extensionId = item.id || setting.id;
+      // If the actual setting has changed in some way, we will have
+      // setting.item which is what the setting has been changed to.  If
+      // we have an item, we always want to update the newTabUrl values.
+      let { item } = setting;
+      if (item) {
+        // If we're resetting, id will be undefined.
+        extensionId = item.id;
         url = item.value || item.initialValue;
-      } else if (setting.item) {
-        // We're disabling or removing a setting.
-        if (item.id && item.value) {
-          // Another extension is gaining control.
-          extensionId = item.id;
-          url = item.value;
-        } else {
-          // we're resetting to the original value, do not set extensionId.
-          url = item.initialValue;
-        }
+        setNewTabURL(extensionId, url);
       }
-      setNewTabURL(extensionId, url);
     }
   }
 );
 
 this.urlOverrides = class extends ExtensionAPI {
   static async onDisable(id) {
     newTabPopup.clearConfirmation(id);
     await ExtensionSettingsStore.initialize();

--- a/browser/components/extensions/test/xpcshell/test_ext_url_overrides_newtab.js
+++ b/browser/components/extensions/test/xpcshell/test_ext_url_overrides_newtab.js
@@ -53,16 +53,19 @@ add_task(async function test_multiple_ex
   const NEWTAB_URI_3 = "webext-newtab-2.html";
   const EXT_2_ID = "ext2@tests.mozilla.org";
   const EXT_3_ID = "ext3@tests.mozilla.org";
 
   const CONTROLLED_BY_THIS = "controlled_by_this_extension";
   const CONTROLLED_BY_OTHER = "controlled_by_other_extensions";
   const NOT_CONTROLLABLE = "not_controllable";
 
+  const NEW_TAB_PRIVATE_ALLOWED = "browser.newtab.privateAllowed";
+  const NEW_TAB_EXTENSION_CONTROLLED = "browser.newtab.extensionControlled";
+
   function background() {
     browser.test.onMessage.addListener(async msg => {
       switch (msg) {
         case "checkNewTabPage":
           let newTabPage = await browser.browserSettings.newTabPageOverride.get(
             {}
           );
           browser.test.sendMessage("newTabPage", newTabPage);
@@ -105,16 +108,41 @@ add_task(async function test_multiple_ex
     );
     equal(
       newTabPage.levelOfControl,
       expectedLevelOfControl,
       `newTabPageOverride setting returns the expected levelOfControl: ${expectedLevelOfControl}.`
     );
   }
 
+  function verifyNewTabSettings(ext, expectedLevelOfControl) {
+    if (expectedLevelOfControl !== NOT_CONTROLLABLE) {
+      // Verify the preferences are set as expected.
+      let policy = WebExtensionPolicy.getByID(ext.id);
+      equal(
+        policy && policy.privateBrowsingAllowed,
+        Services.prefs.getBoolPref(NEW_TAB_PRIVATE_ALLOWED),
+        "private browsing flag set correctly"
+      );
+      ok(
+        Services.prefs.getBoolPref(NEW_TAB_EXTENSION_CONTROLLED),
+        `extension controlled flag set correctly`
+      );
+    } else {
+      ok(
+        !Services.prefs.prefHasUserValue(NEW_TAB_PRIVATE_ALLOWED),
+        "controlled flag reset"
+      );
+      ok(
+        !Services.prefs.prefHasUserValue(NEW_TAB_EXTENSION_CONTROLLED),
+        "controlled flag reset"
+      );
+    }
+  }
+
   let extObj = {
     manifest: {
       chrome_url_overrides: {},
       permissions: ["browserSettings"],
     },
     useAddonManager: "temporary",
     background,
   };
@@ -122,16 +150,17 @@ add_task(async function test_multiple_ex
   let ext1 = ExtensionTestUtils.loadExtension(extObj);
 
   extObj.manifest.chrome_url_overrides = { newtab: NEWTAB_URI_2 };
   extObj.manifest.applications = { gecko: { id: EXT_2_ID } };
   let ext2 = ExtensionTestUtils.loadExtension(extObj);
 
   extObj.manifest.chrome_url_overrides = { newtab: NEWTAB_URI_3 };
   extObj.manifest.applications.gecko.id = EXT_3_ID;
+  extObj.incognitoOverride = "spanning";
   let ext3 = ExtensionTestUtils.loadExtension(extObj);
 
   equal(
     aboutNewTabService.newTabURL,
     DEFAULT_NEW_TAB_URL,
     "newTabURL is set to the default."
   );
 
@@ -144,106 +173,125 @@ add_task(async function test_multiple_ex
     "newTabURL is still set to the default."
   );
 
   await checkNewTabPageOverride(
     ext1,
     aboutNewTabService.newTabURL,
     NOT_CONTROLLABLE
   );
+  verifyNewTabSettings(ext1, NOT_CONTROLLABLE);
 
   await ext2.startup();
   ok(
     aboutNewTabService.newTabURL.endsWith(NEWTAB_URI_2),
     "newTabURL is overridden by the second extension."
   );
   await checkNewTabPageOverride(ext1, NEWTAB_URI_2, CONTROLLED_BY_OTHER);
+  verifyNewTabSettings(ext2, CONTROLLED_BY_THIS);
 
   // Verify that calling set and clear do nothing.
   ext2.sendMessage("trySet");
   await ext2.awaitMessage("newTabPageSet");
   await checkNewTabPageOverride(ext1, NEWTAB_URI_2, CONTROLLED_BY_OTHER);
+  verifyNewTabSettings(ext2, CONTROLLED_BY_THIS);
 
   ext2.sendMessage("tryClear");
   await ext2.awaitMessage("newTabPageCleared");
   await checkNewTabPageOverride(ext1, NEWTAB_URI_2, CONTROLLED_BY_OTHER);
+  verifyNewTabSettings(ext2, CONTROLLED_BY_THIS);
 
   // Disable the second extension.
   let addon = await AddonManager.getAddonByID(EXT_2_ID);
   let disabledPromise = awaitEvent("shutdown");
   await addon.disable();
   await disabledPromise;
   equal(
     aboutNewTabService.newTabURL,
     DEFAULT_NEW_TAB_URL,
     "newTabURL url is reset to the default after second extension is disabled."
   );
   await checkNewTabPageOverride(
     ext1,
     aboutNewTabService.newTabURL,
     NOT_CONTROLLABLE
   );
+  verifyNewTabSettings(ext1, NOT_CONTROLLABLE);
 
   // Re-enable the second extension.
   let enabledPromise = awaitEvent("ready");
   await addon.enable();
   await enabledPromise;
   ok(
     aboutNewTabService.newTabURL.endsWith(NEWTAB_URI_2),
     "newTabURL is overridden by the second extension."
   );
   await checkNewTabPageOverride(ext2, NEWTAB_URI_2, CONTROLLED_BY_THIS);
+  verifyNewTabSettings(ext2, CONTROLLED_BY_THIS);
 
   await ext1.unload();
   ok(
     aboutNewTabService.newTabURL.endsWith(NEWTAB_URI_2),
     "newTabURL is still overridden by the second extension."
   );
   await checkNewTabPageOverride(ext2, NEWTAB_URI_2, CONTROLLED_BY_THIS);
+  verifyNewTabSettings(ext2, CONTROLLED_BY_THIS);
 
   await ext3.startup();
   ok(
     aboutNewTabService.newTabURL.endsWith(NEWTAB_URI_3),
     "newTabURL is overridden by the third extension."
   );
   await checkNewTabPageOverride(ext2, NEWTAB_URI_3, CONTROLLED_BY_OTHER);
+  verifyNewTabSettings(ext3, CONTROLLED_BY_THIS);
 
   // Disable the second extension.
   disabledPromise = awaitEvent("shutdown");
   await addon.disable();
   await disabledPromise;
   ok(
     aboutNewTabService.newTabURL.endsWith(NEWTAB_URI_3),
     "newTabURL is still overridden by the third extension."
   );
   await checkNewTabPageOverride(ext3, NEWTAB_URI_3, CONTROLLED_BY_THIS);
+  verifyNewTabSettings(ext3, CONTROLLED_BY_THIS);
 
   // Re-enable the second extension.
   enabledPromise = awaitEvent("ready");
   await addon.enable();
   await enabledPromise;
   ok(
     aboutNewTabService.newTabURL.endsWith(NEWTAB_URI_3),
     "newTabURL is still overridden by the third extension."
   );
   await checkNewTabPageOverride(ext3, NEWTAB_URI_3, CONTROLLED_BY_THIS);
+  verifyNewTabSettings(ext3, CONTROLLED_BY_THIS);
 
   await ext3.unload();
   ok(
     aboutNewTabService.newTabURL.endsWith(NEWTAB_URI_2),
     "newTabURL reverts to being overridden by the second extension."
   );
   await checkNewTabPageOverride(ext2, NEWTAB_URI_2, CONTROLLED_BY_THIS);
+  verifyNewTabSettings(ext2, CONTROLLED_BY_THIS);
 
   await ext2.unload();
   equal(
     aboutNewTabService.newTabURL,
     DEFAULT_NEW_TAB_URL,
     "newTabURL url is reset to the default."
   );
+  ok(
+    !Services.prefs.prefHasUserValue(NEW_TAB_PRIVATE_ALLOWED),
+    "controlled flag reset"
+  );
+  ok(
+    !Services.prefs.prefHasUserValue(NEW_TAB_EXTENSION_CONTROLLED),
+    "controlled flag reset"
+  );
 
   await promiseShutdownManager();
 });
 
 // Tests that we handle the upgrade/downgrade process correctly
 // when an extension is installed temporarily on top of a permanently
 // installed one.
 add_task(async function test_temporary_installation() {